Eskom's good news debunked by poor economy

The solstice that took place this week marks the longest night in the southern hemisphere, and the middle of winter as the cold bites. In past years in South Africa, it has also meant an increase in electricity consumption, putting significant strain on the power grid.

But so far this winter the picture is different.
And even the open-cycle gas turbines (OCGT), which the state-owned power utility Eskom was running flat out last year – even during the summer months – and which guzzled billions of litres of diesel, are now being used only when required to carry consumers through hours of peak demand.

In an update issued by the utility on Wednesday, it said the OCGT load factor for the month of June is currently 0.45% against a target of 2%.

“To put this into perspective, our monthly OCGT expenditure [for the] month to date is R15-million compared to the budgeted amount of R181-million [for the] month to date. This translates into a total saving of R166-million,” the statement said.

But, when it comes to Eskom, even such seemingly good news can be bad. Industry experts say the reprieve the power grid and the utility have been afforded is largely compliments of an economy in the doldrums.

Shaun Nel, the spokesperson for the Energy Intensive User Group of Southern Africa (EIUG), said that, although energy availability factors had stabilised, the turbines were not being used because there is no demand for them. “There is a significant lack of demand. It has hit a wall and is declining.”

Doug Kuni, an independent energy consultant, said the fact that the lights are still burning has nothing to do with Eskom’s performance.

“What we are seeing are the effects of a rather deep downturn in the economy. ArcelorMittal South Africa has closed some mills; Lonmin is not producing in many of its mines, Highveld Steel shut down. Thousands of megawatts have become available,” he said.

“Saving money on the diesel is real, but the question is: Why we don’t have the demand that requires we buy diesel and run diesel?”

It’s not a result of a better performance by Eskom, he said, adding that less electricity is being used in South Africa today than in 2008. In 2015, Eskom reported total sales of 216 274 gigawatt-hours, compared with 224 366gWh in 2008.

“The poor economy is Eskom’s only saving grace at the moment,” Kuni said.

But the utility credited the improved performance to its base-load power stations, both coal and nuclear, which has resulted in a significant reduction in the use of the OCGTs.

“Eskom’s maintenance programme is contributing significantly to the security of South Africa’s electricity supply,” the utility’s media team said by email. “We delivered on our commitment to do all planned maintenance without load-shedding. We have not implemented load-shedding for the past 10 months, and the plan is to continue implementing appropriate levels of planned maintenance to ensure long-term plant reliability.”

Nel said the renewable energy feeding into the grid has played a part (see “Molefe winds up the renewables lobby”, below) and the imposition of very high tariffs on industry during the high-demand winter months discourages it from using as much power as it normally would.

As a result, companies that need to shut down to do maintenance do it then. “Your major, big smelters would typically shut down over the winter period because of winter tariffs,” said Nel. “Mining would not necessarily close operations, but they wouldn’t be using their smelting operations. They would be building up stock.”

Chris Yelland, an energy expert and the managing director of EE Publishers, said: “My reading of the situation is: we have been through a period where demand has been lower than usual, and that has given Eskom some much-needed space to do deeper- level maintenance. Eskom is using that space well and doing maintenance more effectively than before.”

Yelland said the National Energy Regulator of South Africa has severely criticised Eskom in the past for ineffective maintenance because, following that, some units at plants would be worse off than before.

Yelland said the utility has also benefited from the strong leadership of its chief executive, Brian Molefe, who has restored the confidence of Eskom’s staff. “A strong leader with an even stronger personality is good for an organisation.”

Timing has also worked in Molefe’s favour. “A bad leader may have good timing but may not be able to utilise it,” Yelland said. “The timing has been favourable but, to his credit, he has utilised that space well.”

But Kuni differed from this viewpoint. He said Molefe was “just lucky” to find himself in a space and time that has worked in his favour, making it easy to give the impression that he is doing something in particular to improve the situation.

Eskom said that, because of its rigorous plant maintenance programme, plant availability had improved from 69.9% in October last year to 77.3% at the end of May this year.

“This has resulted in a drastic reduction in unplanned maintenance and the number of breakdowns,” Eskom said, noting that the energy availability factor for the month of June is currently 80.9%.

Eskom also said that, although improving the performance of its existing fleet, it had also managed to fast-track the building of new generating capacity.

But Kuni said Eskom’s forced outage rate remained high and plant availability should, in terms of global standards, be at least 85%, with only a margin of 15% left for planned and unplanned maintenance.

“Eskom claims that, because of its ageing fleet, it breaks down more often. But in Europe, there are plants that are older but run better,” he said.

Kuni also noted that the improvement in the power system was not because of the last units being syncronised at the Ingula pumped storage plant.

Yelland said that, although all units have been synchronised, only one is in commercial use and another unit is undergoing extensive repair.

Ingula, Kuni said, is not a net generator of electricity. As a pumped storage facility, it behaves as a load-shifter – storing electricity to be released during times of peak demand. “That will make a big difference to the need to use the gas turbines,” Kuni said.

If Eskom’s situation is improving, he asked, why is it continuing to seek more money from the government and the national regulator? “I’m extremely concerned as to whether Eskom has enough money to carry out all the maintenance it is supposed to do.”

Kuni expressed concern about another significant issue: the interest Eskom is paying on dollar-denominated loans relating to mega-builds Medupi and Kusile, given the substantial project delays and severe rand depreciation.

Molefe winds up the renewables lobby

Last month, Eskom’s chief executive Brian Molefe said renewable energy had failed Eskom by not providing additional power when the grid needed it most during peak load-shedding periods in 2015.

But Heather Sonn, the chairperson of the South African Wind Energy Association (Sawea), said that, in the first half of last year, wind and solar energy “avoided entirely, delayed or prevented a higher stage of load-shedding for a full 15 days”.

This is based on the conclusions of an independent report by the Council for Scientific and Industrial Research, which found that, from January to June 2015, wind energy alone saved Eskom from having to spend R300-million on buying coal and diesel.

The research shows wind speeds are usually highest during the morning and evening, with a reduction around midday – when solar photovoltaic energy is at a peak.

Just days before Molefe made his comments, Energy Minister Tina Joemat-Pettersson said in her budget speech that renewables had already made a 16% contribution to the total energy produced during the morning and evening peak times in a 24-hour period.

Sawea said South Africa’s renewable energy independent power producers programme had procured 6 377 megawatts of renewable energy to date, and had been hailed as a global success.

“Wind and solar power already provides much-needed electricity to the country’s grid network and the projects have been constructed on time and on budget,” the association said.

Energy expert Chris Yelland said Eskom’s criticism of the renewables programme was offensive to the renewables industry and sent mixed messages, given that the utility itself was investing in its own renewables projects.

“Renewable energy has been shown to have played a very important role in meeting the energy needs of South Africa while reducing the carbon footprint,” Yelland said. –
Lisa Steyn

Lisa Steyn

Lisa Steyn is a business reporter at the Mail & Guardian. She holds a master's degree in journalism and media studies from Wits University. Her areas of interest range from energy and mining to financial services and telecommunication. When she is not poring over annual reports, Lisa can usually be found pottering about the kitchen. Read more from Lisa Steyn